Despite a spate of disappointing economic outlooks from government and private sources, Prudential International Investments Advisers Chief Investment strategist JohnPraveen expects the equity rally to continue into 2010 year-end as a new round of monetary stimulus should support the flagging recovery, while providing additional liquidity for financial markets.
Writing in his “Global Investment Strategy – October 2010,” Praveen believes the earnings outlook remains solid while valuations “remain attractive giving scope for multiple[s ]expansion.”
Among other highlights:
Global macro uncertainties continue to ease with a fresh round of monetary stimulus. These reflation measures should ease fears of double-dip and deflation. While growth momentum remains weak in the developed economies, Q3 GDP is expected to rebound in the U.S. and Japan after the weak Q2. Euro zone and U.K. is expected to slow in Q3 after the Q2 rebound. GDP growth remains solid in the emerging economies.
The earnings outlook for the second half of 2010 in the major markets remains solid although slower than the strong pace in the first half. Equity valuations remain attractive, which combined with low interest rates are likely to lead to multiple expansion in coming months. In addition, the U.S. mid-term election cycle is positive for stocks as historically the U.S. equity market posted solid gains following mid-term elections.